425

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  February 8, 2007

HERITAGE COMMERCE CORP

(Exact name of registrant as specified in its charter)

California	000-23877	77-0469558
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

150 Almaden Boulevard, San Jose, CA	95113
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (408) 947-6900

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (See General Instruction A.2. below):

x Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 1.01 - Entry Into A Material Definitive Agreement

On February 8, 2007, Heritage Commerce Corp (the “Company”), its wholly-owned subsidiary, Heritage Bank of Commerce (“Heritage Bank”), and Diablo Valley Bank (“Diablo”) entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, among other things, Diablo will merge with and into Heritage Bank, with Heritage Bank surviving the merger (the “Merger”) in a cash and stock transaction valued at approximately $70 million.  The Merger Agreement has been unanimously approved by the Boards of Directors of the Company, Heritage Bank and Diablo.  The Merger is subject to approval by the Diablo shareholders.

Under the terms of the Merger Agreement, the Company will pay a fixed number of 1,732,298 shares of the Company’s common stock and an aggregate of $15 million in cash for all of the issued and outstanding shares of Diablo common stock.  Each Diablo common shareholder will be entitled to receive at the shareholder’s election (subject to certain prorating procedures) cash or the Company’s common stock.  The per share consideration for each share of Diablo common stock will be calculated by reference to the Company’s average closing price over a 20 trading day period ending 5 days before the effective date of the Merger (“Average Closing Price”).  Based on the closing price of the Company’s common stock of $27.25 on February 8, 2007, the per share consideration would be $24.87.  The per share consideration will float within a band of $23.00 to $25.00 if the Average Closing Price is between $24.55 and $27.44.  If the Average Closing Price is above $27.44, the per share consideration will be increased to reflect one-third of the increase in the Average Closing Price above $27.44.  If the Average Closing Price is below $24.55, the aggregate amount of cash paid in the Merger will be increased to an amount necessary to maintain a minimum per share consideration of $23.00.  If the Average Closing Price falls below $23.50, the Company has the right to terminate the Merger Agreement.  All Diablo stock options will be terminated at the effective time of the Merger and option holders will receive cash in the amount of the per share consideration minus the exercise price of the option (in the aggregate approximately $8 million).  Diablo’s issued and outstanding Series A Preferred Stock will be redeemed in full at $32 per share by Diablo prior to the effective time of the Merger (approximately $6.5 million).

The Merger Agreement contains customary representations and warranties of the Company, Heritage Bank and Diablo.  Consummation of the Merger is subject to certain conditions, including, among others, (i) approval by the Diablo common shareholders, (ii) receipt of certain regulatory approvals, (iii) the filing of a registration statement on Form S-4 to register the Company’s common stock to be issued in the Merger with the Securities and Exchange Commission and receipt of the SEC’s order that such registration statement is effective, (iv) listing of the Company’s common stock to be issued in the Merger with NASDAQ, (v) satisfaction of tangible net worth and customer deposit tests, (vi) redemption of Diablo’s Series A Preferred Stock, and (vii) the accuracy of representations and warranties of Diablo, the Company and Heritage Bank.

Certain shareholders of Diablo have entered into Shareholder Agreements with the Company pursuant to which they have agreed to vote their Diablo shares in favor of the Merger. The Diablo Board of Directors has agreed to recommend to its shareholders the approval of the Merger.  The Merger Agreement provides for the payment of a Termination Fee in the amount of

2

$3,380,000 if the Merger Agreement is terminated by the Company or Diablo under specified circumstances.

On the effective date of the Merger, two members of the Diablo Board of Directors, John J. Hounslow and Mark E. Lefanowicz will be added to the Company and Heritage Bank Board of Directors.

In connection with the Merger Agreement, the Company and/or Heritage Bank entered into the following agreements which will become effective upon the effective time of the Merger: (i) a three year employment agreement with James Mayer (the President of Diablo) for annual salaries of $220,000, $240,000 and $250,000 and the grant (subject to approval of the Company’s Compensation Committee and Board of Directors) of stock options for 20,000 shares of the Company’s common stock pursuant to its 2004 Stock Option Plan, (ii) a consulting agreement with John J. Hounslow (the Chairman of the Board of Diablo) pursuant to which Mr. Hounslow will receive $400,000, and  (iii) non-compete agreements with Mr. Mayer and Mr. Hounslow (for which Mr. Hounslow will receive $200,000).  Mr. Mayer and Mr. Hounslow have agreed to forego certain severance payments due to them as a result of the Merger in exchange for the Agreements with the Company and Heritage Bank.

In connection with the proposed Merger, the Company intends to file relevant materials with the SEC, including a Registration Statement on Form S-4 (the “Registration Statement”), to register the shares of the Company to be issued in exchange for Diablo common shares.  The Company plans to file with the SEC and with the cooperation of Diablo mail to the Diablo shareholders a proxy statement/prospectus relating to the proposed transaction (the “Proxy Statement/Prospectus”).  The Registration Statement and the Proxy Statement/Prospectus will contain important information about the Company, Diablo, the Merger, the Merger Agreement and related matters.  Investors and security holders are urged to read the Registration Statement and the Proxy Statement/Prospectus carefully when they are available.  Investors and security holders will be able to obtain free copies of the Registration Statement and the Proxy Statement/Prospectus and other documents filed with the SEC by the Company through the website maintained by the SEC at www.sec.gov.  In addition, investors and security holders will be able to obtain free copies of the Registration Statement and the Proxy Statement/Prospectus when they become available from the Company by request mailed to Heritage Commerce Corp, 150 Almaden Boulevard, San Jose, California, Attention:  Corporate Secretary.

ITEM 8.01 - Other Events

The Company is filing its slide presentation of February 9, 2007, which will be utilized in presentations to investors.  The slide presentation is included as Exhibit 99.2 to this Report.

ITEM 9.01 - Financial Statements and Exhibits

(d)     Exhibits

          99.1     Joint press release announcing the entering into the Agreement and Plan of Merger

          99.2     Heritage Commerce Corp slide presentation of February 9, 2007.

3

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	HERITAGE COMMERCE CORP
DATED: February 8, 2007	By:	/s/ Lawrence D. McGovern
		Lawrence D. McGovern
		Executive Vice President and
		Chief Financial Officer

4

Exhibit Index

Exhibit	Description
99.1	Joint press release announcing the entering into the Agreement and Plan of Merger
99.2	Heritage Commerce Corp slide presentation of February 9, 2007

5

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

February 8, 2007

Walter T. Kaczmarek	John J. Hounslow
President and Chief Executive Officer	Chairman
Heritage Commerce Corp	Diablo Valley Bank
(408) 947-6900	(925) 314-2801

HERITAGE COMMERCE CORP TO ACQUIRE DIABLO VALLEY BANK
FOR $70 MILLION

SAN JOSE and DANVILLE, California — Heritage Commerce Corp (NASDAQ: HTBK) and Diablo Valley Bank, (OTC BB: DBVB) today announced the signing of a definitive agreement by which Diablo Valley Bank will be merged into Heritage Bank of Commerce in a cash-and-stock transaction valued at approximately $70 million.  The merger will expand Heritage’s branch network, add strong commercial lending capabilities to the bank’s Diablo Valley operations and bring total assets for the combined entities to $1.3 billion.  A conference call and investor presentation regarding the merger will be held tomorrow at 8:30 a.m. PST.

The boards of both companies unanimously approved the transaction, which is subject to approval by Diablo Valley Bank’s shareholders, as well as regulators and other customary conditions of closing.  The parties expect the transaction to close in the second or third qurter of 2007.

“We are delighted to be joining forces with the Diablo Valley team, which has established a phenomenal organization in a very short time period.  In addition to being one of the fastest growing banks in the region, they achieved profitability within the second year of opening their doors.  This strategic transaction brings a premier California franchise with a strong business culture and a respected team of local bankers to our organization.  It also enhances our position in the affluent East Bay communities of Danville and Pleasanton, which have exceptional demographics for attracting deposits and a very strong entrepreneurial business community,” said Walter Kaczmarek, President and Chief Executive Officer of Heritage Commerce Corp.

Founded in October 2003, Diablo Valley Bank is one of the fastest growing community banks in the region with $249 million in assets, $199 million in loans, $224 million in deposits and shareholders’ equity of $24 million at December 31, 2006.  With branches in Pleasanton and Danville, the bank is dedicated to serving the banking and financing needs of successful entrepreneurs, their families, business ventures and real estate investments.

“We expect the transition to be seamless to our customers, who will continue to receive the same level of exceptional service that they have received in the past three years with the added benefit of new products and services and higher lending limits,” said John Hounslow, Chairman of the Board of Directors of Diablo Valley Bank.  “We view Heritage as one of the premier banking organizations in this region, and as one of the largest SBA lenders in the state, it significantly expands our lending capabilities for small businesses in our communities.  We believe all our stakeholders — customers, employees, shareholders and community members — will benefit from this merger.  Our commitment to preserving our community bank atmosphere and high quality service will be unchanged, and our employees will have greater opportunities for growth and advancement.”

The transaction is expected to be accretive to Heritage’s earnings per share in 2008.

The terms of the transaction call for Heritage to pay 1,732,298 of Heritage Commerce common shares and an aggregate amount of $15.0 million in cash for all common shares of Diablo currently outstanding.  Diablo common shareholders may elect to receive cash or stock , subject to certain pro-ration procedures.  The per share consideration will be calculated based on Heritage’s average share price over a 20 day period ending 5 days prior to the effective time of the merger (the “Heritage Closing Price”).  Based on the closing price of Heritage of $27.25 on February 8, 2007, the per share consideration would be $24.87.  The per share consideration will float within a band of $23.00 to $25.00 if the Heritage Closing Price is between $24.55 and $27.44. If the Heritage Closing Price is above $27.44, the per share consideration will be increased to reflect one third of the increase in value of Heritage stock issued above $27.44. If the Heritage Closing Price is below $24.55 the aggregate amount of cash paid in the transaction will be increased sufficiently to maintain the per share consideration at $23.00. Heritage has the right to terminate the transaction if the Heritage Closing Price is less than $23.50.  All the Diablo options outstanding at the effective time will be cashed out.  Diablo will redeem its outstanding preferred stock in full at $32 per share prior to closing (approximately $6.5 million).

Heritage Commerce Corp used RBC Capital Markets as its financial adviser, and Buchalter Nemer served as legal counsel.  Howe Barnes Hoefer & Arnett acted as financial adviser for Diablo Valley Bank, while Bingham McCutchen LLP provided legal counsel.

Conference Call

The Company will host a conference call tomorrow Friday, February 9, 2007, 8:30 a.m.PST (11:30 a.m. EST), to discuss the acquisition.  The conference call can be accessed live by telephone at 303-262-2211.  To access the slideshow presentation and to listen to the call online, go to the Company’s website at www.heritagecommercecorp.com.  An archived recording of the call can be accessed by dialing 303-590-3000, passcode 11083917# until Friday, February 16, 2007 or via the Internet at www.heritagecommercecorp.com.

About Heritage Commerce Corp

Heritage Commerce Corp, a bank holding company established in February 1998, is the parent company of Heritage Bank of Commerce, established in 1994 and headquartered in San Jose with 9 full-service branches in Los Gatos, Fremont, Danville, Morgan Hill, Gilroy, Mountain View and Los Altos. Heritage Bank of Commerce is also an SBA Preferred Lender ranked the fourth largest SBA lender in Northern California and fourteenth in the State of California, with Loan Production Offices in San Jose, Chico, Fremont, Fresno, Jackson, Elk Grove, Santa Cruz and Watsonville, California.

About Diablo Valley Bank

Diablo Valley Bank is the East Bay’s independent commercial bank dedicated to serving the banking and financing needs of successful entrepreneurs, their families, business ventures and real estate investments. The Bank has professional bankers strategically positioned at offices in Danville and Pleasanton and offers additional depository access with internet-based cash management products, its courier service and correspondent relationships with money center banks.

Additional Information About This Transaction:

Heritage Commerce Corp will file a proxy statement/prospectus and other relevant documents concerning the Merger with the United States Securities and Exchange Commission (SEC). We urge investors to read the proxy statement/prospectus when it becomes available and any other documents to be filed with the SEC in connection

with the Merger or incorporated by reference in the proxy statement/prospectus, because they will contain important information.  Investors will be able to obtain Heritage Commerce Corp documents free of charge at the SEC’s website (www.sec.gov).

Forward-Looking Statements Disclaimer

Discussions contained or incorporated by reference in this filing or the exhibits that are not statements of historical fact are forward-looking statements that involve risks and uncertainties including, with out limitation, (i) statements relating to the benefits of the proposed merger of Heritage Bank of Commerce and Diablo Valley Bank (the “Merger”), including future financial and operating results, cost savings, enhanced revenues and the accretion/dilution to reported earnings that may be realized from the Merger, (ii) statements regarding certain Heritage Bank of Commerce  and Diablo Valley Bank goals and expectations with respect to earnings, earnings per share, revenue, expenses and the growth rate in such items, as well as other measures of economic performance, including statements relating to estimates of credit quality trends, and (iii) statements preceded by, followed by or that include the words “may, “could”, should, “would”, believe”, “anticipate”, “estimate”, “expect”, “intend”, “plan”, or similar expressions. These statements are based on current beliefs and expectations of the management of Heritage Commerce Corp and/or Diablo Valley Bank and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements.

The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the ability to obtain regulatory approvals of the Merger on the proposed terms and schedule; the failure of the Diablo Valley Bank shareholders to approve the transaction; the risk that the business of Diablo Valley Bank will not be integrated successfully or will be more difficult, time-consuming or costly than expected; deposit attrition and other disruption from the Merger making it more difficult to maintain relationships with customers, employees or suppliers; the risk that synergies from the Merger may not be fully realized or may take longer to realize than expected;  competition and its effect on pricing, spending, third-party relationships and revenues; the strength of the United States Economy in general,competition in the financial services market for both deposits and loans as well as regional and general economic conditions; and Heritage’s ability to successfully complete consolidation and conversion activities, incorporate acquisitions into its operations, retain key employees, increase its customer base, achieve cost savings and successfully generate commercial, consumer and real estate loans.  Additional factors that may affect future results are contained in Heritage’s filings with the SEC, which are available at the SEC’s web site http://www.sec.gov, including in Heritage’s Annual Report on Form 10-K for the year ended December 31, 2005, under the heading “Risk Factors.”  Readers should not place undue reliance on the forward-looking statements, which reflect management’s view only as of the date hereof.   All subsequent written and oral forward-looking statements concerning the proposed Merger or other matters attributable to Heritage Commerce Corp, Heritage Bank of Commerce or Diablo Valley Bank or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements above. Heritage undertakes no responsibility to update or publicly revise any forward-looking statements to reflect subsequent events or circumstances.

EX-99.2

Exhibit 99.2

Acquisition of: February 9, 2007

Forward-Looking Statements Disclaimer Discussions contained or incorporated by reference in this filing or the exhibits that are not statements of historical fact are forward-looking statements that involve risks and uncertainties including, with out limitation, (i) statements relating to the benefits of the proposed merger of Heritage Bank of Commerce and Diablo Valley Bank (the “Merger”), including future financial and operating results, cost savings, enhanced revenues and the accretion/dilution to reported earnings that may be realized from the Merger, (ii) statements regarding certain Heritage Bank of Commerce and Diablo Valley Bank goals and expectations with respect to earnings, earnings per share, revenue, expenses and the growth rate in such items, as well as other measures of economic performance, including statements relating to estimates of credit quality trends, and (iii) statements preceded by, followed by or that include the words “may, “could”, should, “would”, believe”, “anticipate”, “estimate”, “expect”, “intend”, “plan”, or similar expressions. These statements are based on current beliefs and expectations of the management of Heritage Commerce Corp and/or Diablo Valley Bank and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the ability to obtain regulatory approvals of the Merger on the proposed terms and schedule; the failure of the Diablo Valley Bank shareholders to approve the transaction; the risk that the business of Diablo Valley Bank will not be integrated successfully or will be more difficult, time-consuming or costly than expected; deposit attrition and other disruption from the Merger making it more difficult to maintain relationships with customers, employees or suppliers; the risk that synergies from the Merger may not be fully realized or may take longer to realize than expected; competition and its effect on pricing, spending, third-party relationships and revenues; the strength of the United States Economy in general, competition in the financial services market for both deposits and loans as well as regional and general economic conditions; and Heritage’s ability to successfully complete consolidation and conversion activities, incorporate acquisitions into its operations, retain key employees, increase its customer base, achieve cost savings and successfully generate commercial, consumer and real estate loans. Additional factors that may affect future results are contained in Heritage’s filings with the SEC, which are available at the SEC’s web site http://www.sec.gov, including in Heritage’s Annual Report on Form 10-K for the year ended December 31, 2005, under the heading “Risk Factors.” Readers should not place undue reliance on the forward-looking statements, which reflect management’s view only as of the date hereof. All subsequent written and oral forward-looking statements concerning the proposed Merger or other matters attributable to Heritage Commerce Corp, Heritage Bank of Commerce or Diablo Valley Bank or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements above. Heritage undertakes no responsibility to update or publicly revise any forward-looking statements to reflect subsequent events or circumstances.

Transaction Overview Diablo Valley Bank will merge with and into Heritage Bank of Commerce Implied per share consideration of $24.87 * Approximately $70.2 million * HTBK will issue 1,732,298 shares of stock and approx. $15.0 million in cash in respect of Diablo shares outstanding, and Approximately $8.0 million in cash in respect of Diablo options outstanding * Total consideration mix is approximately 67% stock and 33% cash for all DBVB shares and options outstanding $23.00 to $25.00 if HTBK’s ACP ** is between $24.55 and $27.44 If HTBK’s ACP is >$27.44, then the consideration will increase to reflect 1/3 of the value of HTBK stock above $27.44 If HTBK’s ACP is <$24.55, then cash paid will be increased to maintain $23.00 for DBVB shareholders Transaction Structure Purchase Price Share Aggregate Price Consideration Pricing Collar * Based on HTBK’s closing price of $27.25 on 2/8/07. ** Average Closing Price (ACP) per share is calculated for the 20 consecutive trading day period ending five business days prior to close.

Transaction Overview Heritage has the option to terminate the transaction if HTBK’s ACP is less than $23.50 All Diablo options outstanding at closing will be cashed out Preferred equity to be redeemed in full prior to closing (approximately $6.5 million) Two Diablo members will join Heritage Commerce Corp Board (currently 11 members) $3.4 million or approximately 5% of deal value Completed by both Heritage and Diablo Second or third quarter of 2007 Treatment of Options Board Representation Termination Fee Due Diligence Anticipated Closing Treatment of Preferred Equity Walk Away

Source: Company press releases and Call reports. As of 12/31/06, compared to prior year. Net Income Before Taxes rose to $3.6M, a 146% increase from $1.5 million Loans were up 37% to $199 million from $146 million Deposits reached $224 million, for an increase of $59 million or 35% Efficiency ratio improved to 61.2% in 2006 from 64.21% in 2005 Record 2006 EPS up 21% to $1.44 Expanding NIM of 5.06% ROAA improved to 1.57% ROAE grew 89 bp to 14.6% Efficiency ratio improved 466 bp to 56.9% HTBK DBVB Partnership of Two Strong Franchises

Summary of Rationale Diablo is Top Community Bank in the East Bay $199 Million Loans – CAGR 46% from 2004 – 2006 * $224 Million Deposits – CAGR 44% from 2004 – 2006 * Profitable in second year of operations Newly established brand recognized and respected in the local community Achieves positive financial results for Heritage Accretive to Heritage’s EPS in 2008 Heritage remains well-capitalized Estimated cost efficiencies of $2.0 - $2.5 million from overlapping branches and back office consolidation Heritage’s expansion in the East Bay Area Solidifies Heritage’s current East Bay Area franchise Wider distribution network for current and prospective customers for both banks Exposure to an economically vibrant area with attractive demographics * Source: Company press releases and Call reports. As of 12/31/06.

Summary of Rationale Heritage bolsters its presence in the Alameda and Contra Costa counties (the 6th and 7th largest markets in California by deposits, respectively) Attractive demographics: Contra Costa Population: 1,045,952 (9th in the state) Household Income: $78,954 (4th in the state) Household income grew 24% over the last 6 years, and is projected to grow another 21% over the next 5 years, the 5th highest expected growth rate in the state Alameda Population: 1,507,504 (7th in the state) Household Income: $69,473 (10th in the state) Household income grew 24% over the last 6 years, and is projected to grow another 18% over the next 5 years, the 11th highest expected growth rate in the state Source: SNL Financial. As of 6/30/06.

Heritage Commerce Corp (9 branches) Diablo Valley Bank (2 branches) Deposit Share Branch Map Building a Premier Bay Area Franchise Source: SNL Financial. As of 6/30/06. Heritage Commer Corp 6/2006 % List Address City County Deposits Deposits 150 Almaden Blvd San Jose Santa Clara $494,695 53.9 369 S San Antonio Rd Los Altos Santa Clara 91,597 10.0 4546 El Camino Real Los Altos Santa Clara 80,510 8.8 3077 Stevenson Blvd Fremont Alameda 74,739 8.1 15575 Los Gatos Blvd Los Gatos Santa Clara 58,715 6.4 18625 Sutter Blvd Morgan Hill Santa Clara 46,949 5.1 175 E El Camino Real Mountain View Santa Clara 41,147 4.5 7598 Monterey St Gilroy Santa Clara 18,553 2.0 310 Hartz Ave Danville Contra Costa 10,911 1.2 Diablo Valley Bank 6/2006 % List Address City County Deposits Deposits 387 Diablo Road Danville Contra Costa $121,322 62.6 300 Main St Pleasanton Alameda 72,531 37.4 Branch Proximity Branch Proximity Report for Selected Markets Distance 5.00 miles 6/2006 % List Distance Name Address City Deposits Deposits Heritage 310 Hartz Ave Danville $10,911 1.2 0.3 Diablo 387 Diablo Road Danville 121,322 62.6 Deposit Market Share % Dep. Rank in County Heritage Diablo Pro Forma Mkt Share County Santa Clara $832,166 $0 $832,166 1.7 12 Contra Costa 10,911 121,322 132,233 0.6 18 Alameda 74,739 72,531 147,270 0.5 16

Company Profile Assets Gross Loans Total Deposits Shareholders’ Equity $1,037,138 $742,988 $846,593 $122,820 $249,268 $199,412 $224,215 $24,012 ($ in 000) Source: Heritage data from press release. Diablo data from press release and Call report. As of 12/31/06. (1) Includes $17.2 million loans held for sale. (1)

Loan Mix Source: SNL Financial. Regulatory composition as of 9/30/06.

Deposit Mix Source: SNL Financial. Regulatory composition as of 9/30/06.

Diablo’s Portfolios & Growth Millions Millions Gross Loans Deposits Millions Earnings Before Taxes Assets Millions Source: SNL Financial, Company press releases and Call reports.

Enhances banking franchise Retain experienced management team Expected to be accretive to EPS Strong credit quality Diversifies and expands lending capacity Increases presence in fast-growing East Bay Area market Transaction Summary